Canada: BC LNG: Regulatory Approvals And Project Risk

Several BC LNG syndicates are nearing, or appear to be nearing, final investment decisions, but they will need all significant regulatory approvals before those decisions are made. The most significant regulatory approvals for a BC LNG project are: (1) a National Energy Board (NEB) export licence; and (2) an environmental assessment certificate issued under the Canadian Environmental Assessment Act (CEAA) and/or British Columbia's Environmental Assessment Act (BCEA).

For the three BC LNG projects which are generally assumed to be closest to reaching final investment decisions, the status of their regulatory approvals are as follows:

In March 2014, Woodfibre received an NEB export licence to export 3.42 billion cubic meters (BCM) of LNG annually over a 25 year period, which is sufficient to support its proposed exports of 2.1 million tons per annum (MTPA). 

In February 2014, Woodfibre received a substitution order pursuant to the CEAA, which allows the BC Environmental Assessment Office to take the lead in gathering information and setting out procedural aspects of the environmental assessment, while the Canadian Environmental Assessment Agency contributes its federal departmental expertise.

After a pre-application phase was completed under the BCEA, Woodfibre was authorized to file its formal application for an environmental assessment certificate in January 2015. That filing initiated a 180 day review period, which is currently underway, and a decision is not expected before Q3 of 2015.  Before Woodfibre's final investment decision is made, it will likely need to receive its environmental assessment certificate, and Fortis BC will need to receive a similar certificate for its proposed 52 kilometer pipeline to connect with the Woodfibre facility.  In order to ship first gas in 2017, as proposed, Woodfibre will probably need to make its final investment decision before the end of 2015.

Douglas Channel will be developed in two phases, the first of which will consist of floating liquefaction facilities with a capacity to export LNG of, or even slightly in excess of, 0.55 MTPA, as previously proposed.  The second phase will be materially larger – possibly up to ten times the size of the first phase – and in aggregate would have the capacity to produce and export more than 7 MTPA.

After having its original NEB export licence revoked as a result of proceedings under the Companies' Creditors Arrangement Act affecting its predecessor, AltaGas applied in June 2015 for a replacement NEB export licence for Douglas Channel.  AltaGas applied for a licence to export 10.3 BCM of LNG annually for 25 years, which would be sufficient to support both phases of the proposed project.

Due to its small size Douglas Channel is not required to obtain an environmental assessment certificate under the CEAA or the BCEA in connection with the first phase of its proposed project. Also, given that Douglas Channel is using the existing PNG pipeline owned by its AltaGas affiliate for its first phase, no additional regulatory approvals are required at this time. However, the second phase will require an expansion of the PNG pipeline, and PNG has already completed the initial site work for that expansion.

Douglas Channel already holds a long term lease agreement with the Haisla Nation on District Lot 99, which is located approximately eight kilometers west of Kitimat, where the project will be built and no additional consents or approvals appear to be required from affected First Nations, at least for the first phase of its project.

In March 2014, Petronas received an NEB export licence to export 32.61 BCM of LNG annually for 25 years, which will allow for the exportation of the entire capacity of the Pacific NorthWest LNG project at full build-out, being 19.2 MTPA.

In November 2014, Petronas received its environmental assessment certificate under the BCEA; however, it did not apply for a substitution order under the CEAA, so it must obtain a separate CEAA environmental assessment certificate. Petronas is in the process of obtaining its CEAA environmental assessment certificate, but it is not expected to be issued before Q4 2015. There are also still significant issues between Petronas and affected First Nations that need to be resolved.

Petronas will likely need the better part of five years after a final investment decision has been made to complete construction and commissioning of the Pacific NorthWest LNG project. If the necessary regulatory approvals are not obtained and a final investment decision has not been made by the end of 2015, the proposed schedule to ship first gas by 2019 would have to be delayed.

The other major BC LNG projects led by Shell, Chevron, Exxon, and CNOOC all hold the necessary NEB export licences. In fact, Kitimat LNG, led by Chevron, has all of the significant regulatory approvals that are required (its BCEA environmental assessment certificate actually had to be extended to avoid expiration).

Shell, Exxon, and CNOOC are still in the process of obtaining environmental assessment certificates, but they have all received substitution orders under the CEAA, so they only need to complete the BCEA process. In each case, they are sufficiently advanced that receiving their environmental assessment certificates will likely not be determinative in the timing of their final investment decisions, which are not imminent – at least they are not expected this year. Rather, project economics, not the timing of regulatory approvals, will likely dictate when final investment decisions for each of these potential projects are made.

The regulatory risks faced by Woodfibre and Petronas to obtain environmental assessment certificates under the BCEA and the CEAA, respectively, are significant and will almost certainly need to be resolved before either can make a final investment decision. Douglas Channel either holds, or is exempt from, virtually all significant approvals needed to complete at least the first phase of its project.  The one outstanding item, a replacement NEB export license, is likely to be handled in the ordinary course by the NEB, particularly for the first phase of the proposed project - so its regulatory risk appears to be somewhat lower.

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